Citigroup, Other Big US Banks Flunk ‘Stress Tests’
The Federal Reserve said on Tuesday that 15 of 19 major U.S. banks have passed the government’s latest round of financial stress tests. Four institutions — Citigroup (C), Ally Financial, MetLife (MTI), and (SunTrust (STI) — fell short of the central bank’s minimum capital requirements.
The Fed conducts the tests on banks every year, but this is the first time since 2009 that it released its results to the public. The central bank noted that all of the banks have built up their capital reserves since the 2008 financial crisis.
The tests are designed to make sure banks have enough cash and cash-like securities to withstand catastrophic losses in a financial crisis. The Fed wants banks to be strong enough to keep lending money to Americans and businesses.
Among the scenarios the tests imagine are 13 percent unemployment, much higher than today’s 8.3 percent, and a 50 percent drop in stock prices.
The Fed can stop banks from paying stock dividends or buying back their own stock if they fail the test.